It was an historic gamble. Emmanuel Macron
calling a snap election
following his party's crushing following his party's crushing defeat in Sunday's
European Parliament elections. And it surprised everyone. And just a month later,
we have a hung parliament scenario. This is a first time
no one is gaining an absolute majority in the National Assembly. So why'd Macron risk it
in the first place? If you talk to or listen to
his ministers, they will say this is the decision of one man
and one made in full view of galvanized opposition parties on the left and,
crucially, the right. It was a dangerous election a president didn't have to call and would trigger panic in
the country's vital bond market. So what sparked
Macron's great gamble? And what does the outcome mean
for Europe's second biggest economy? Before we get to all the candidates and the uncertainty,
let's start with the economy. What is it about calling a snap
election in France that's leading to a reaction
like this over the last 24 hours? That was a good question,
because investors had spent that time offloading
French debt as quickly as they could. Look what happened. That's the biggest jump in the France
bond risk gauge in more than a decade. It's also called a spread. And in this case, the lower
the line, the closer to nice, safe. Germany investors thought
the risk of holding French debt was. And this very literal measurement of risk is essential in understanding
the uncertainty of what's to come. Because investors who buy and sell bonds are really power
players in European politics. They're the ones who lend countries
money when they need it most. Remember British
Prime Minister Liz Truss? The reason she spent less time in office
than some people keep eggs in a kitchen kitchen was because her unworkable economic policies spooked the bond markets so much market so much it sent the UK's borrowing costs to a 25 year high. The last thing France wanted
was uncertainty and to be seen as financially risky. After all, the country
been trying to cement Paris as the continent's leading financial hub
in the wake of Brexit. But suddenly people started
to question whether that was But suddenly people started
to question whether that was going to remain the case. If either the far right or the far left come into power their concern will not be increasing
France's attractiveness as a financial center, and that many of the
policies put in place
by Macron could be rolled back. by Macron could be rolled back. And now investors have
put France in the firing line. They view Germany as
the most responsible
pair of hands that they can possibly get. pair of hands that they can possibly get. The difference in the yield,
in other words, the difference in the interest rate that people insist
on getting in order to buy your bonds between France and
Germany has been very narrow. Macron had intended the election to provide his government
some clarification. So why did it cause so much uncertainty? Let's go back to the exciting Parisian Spring of 2017. Disneyland Paris
had just debuted a new Star Wars ride, and the French public had elected
its youngest ever president. 39 year old
Emmanuel Macron. He really was a fresh face
for politics here. Macron came to power, destroying
the traditional establishment party, the Republican conservative Party,
on the right and the Socialist Party on the left, which had basically
been ruling France for years. At the time, there was a socialist prime
minister, who was perceived as quite right right wing and quite conservative,
and he was perceived as the more left wing option. So in a way, he was elected
in 2017 by the left. And two years ago he was elected again
thanks to the left. Essentially, he drawn considerable support from voters who simply disliked the opposition
more than him. And seven years later, that is support
he'd see significantly weaken. Marine Le Pen had tried to rebrand her
National Rally, formerly the National Front,
as a less toxic, more electable party since taking over in 2011 from her father
Jean-Marie, who was notorious
for saying stuff like this Marine Le Pen would soften her
stance on immigration in future. But none of this was enough
for now, and Macron took office. But the former Rothschild banker and
graduate at the prestigious policy school. school ENA earned public confidence on the world stage. His elite background
didn't always help, however. He was visiting crowds. A woman talked about how her son
was having difficulty finding a job after It was seen as very, very condescending
and really seen as out of touch with the concerns of
normal French people. There's often
been this split between the elite and sort of the regular people in France,
and Macron really is the epitome of the French elite
in the way that he speaks, in the way that he uses
obscure metaphors and references. I think even some people
who would agree with Macron's policies do not like Macron
because of his personality. They also didn't like his plan
to raise taxes on fuel. The fuel tax would have hit low
income people hardest and further
watered down his popularity. Despite all the chaos,
the economy remained relatively stable,
essential for what came next. Covid shut down the country just like it
shut down many other countries. But the French state did a very good job
actually, during Covid, although the government had to borrow
a lot by issuing bonds to achieve that, pushing up national debt to
the second highest level among the major advanced economies
as a percentage of GDP. But then the big misfire. Today is the first day of a general strike
in France against the French president Emmanuel Macron's
pension reform, which plans to raise the retirement age
from 62 to 64 years old. Every time he opened
his mouth about it,
his popularity went down. his popularity went down. At some point, Macron's government
was close to being overthrown by a no confidence
vote that failed by only nine votes. Watching from the sidelines of power
was Marine Le Pen, who realized that defeating Macron would need
attractive policies and personalities. When her father made it
to the runoff of the election, there were massive demonstrations
on the streets. Marine Le Pen saw these protests. She realized that she had to erase
the legacy of her father. She ousted him from the party,
toned down opinions voiced by her senior MPs, and even insisted
they start wearing suits and ties. Anything to tell the country
the National Rally was ready to govern. Marine Le Pen has tried
to de- demonize her party that people who are law abiding have
nothing to worry about from her party. The times
when Marine Le Pen has really gained the most in terms of public opinion
polls, have been when Emmanuel Macron
or his government have made missteps, and now he faced an emboldened yet
leaderless alliance of usually disunited left wing parties, ranging
from moderates to communists and a cleaned up far right rival
selling her party and policies as having left racism
and anti-Semitism behind. This is what triggered that
bond market
panic in the aftermath of Macron's
announcement of the snap election. It was a warning shot that investors
were prepared to make life a lot harder for any incoming government
if it doesn't like what it sees. In the end,
French voters delivered another shock. France is heading into political gridlock
after a shock defeat for Marine Le Pen's National Rally
in Sunday's election. The polls showed
Le Pen's party coming out on top, but the left wing coalition came in first,
pushing her National Rally into third place behind Macron, meaning
none of them could form a government. It looked like the country
would essentially be ungovernable. The risk of real change, big change
in terms of regulation, taxation, etc. comes from the left and that would be
the biggest risk in the French market. Investors may have avoided the worst case scenario of an extremist party running one of the world's most powerful countries, but they remain on edge. That all important French spread with
Germany is still historically very high. And with war
raging on Europe's eastern frontier and the region struggling to jumpstart economic growth, France looks politically paralyzed,
at least for now, at a time
when the continent needs leadership.